I consult on content strategy for technology companies and produce web content for entrepreneurs and business owners. Currently I am traveling around the USA on an 8-month roadtrip (in a bright blue RV) exploring 3D Printing, 3D Scanning, and 3D Design. In the past, I have put pen to paper for the Wall Street Journal, Make, Sports Afield, the Pittsburgh Business Times and many others. You can follow my work via Twitter, Google+, or my site: RefineDigital.com

Facebook IPO: Buy Early And Buy As Much As You Can

The Facebook IPO promises to be insane. People will buy. Employees will go beyond paper wealth. Small, tiny public shareholders and investors will get rich. It is the American way. Pundits, critics, and analysts far smarter than me have claimed it’s a fad. Facebook is a fad.

I’m not a Facebook fan, not really, but I use it. I’m on it for business reasons mostly, but I’m on it. No matter what – it isn’t a fad, at least not technically — it’s been around too long. There are times that I think a bunch of juvenile delinquents are running the show at the Big F. There are times that I wish it would simply go away. But I don’t think that’s going to happen. I also don’t think its stock price is going to soar, then plummet. As much as the social network can drive me batty with its privacy changes and apparent arrogance and indifference to customers, I’m going to go out on a limb here and state that I don’t believe they are going to fail. Not in the short term or medium term, anyway.

The “Facebook fad” proponents appear to have come out of the woodwork and want to predict the coming demise of Facebook as soon as it goes public. I almost agreed with them. One of the big reasons they cite is that the advertising platform is not as profitable as Google when it went public in 2004 (and pick any year to compare). I can’t think of anything better to say than, “so what.” Facebook and Google are frequently compared and they are often touted as arch rivals, but I really don’t get it – Microsoft and Apple have both grown, despite the rivalries. They’ve even helped each other, inadvertently and advertently (what a rarely used word). It’s a big market place, in a big world, and Google certainly hasn’t done an amazing job in social.

Back to the big reasons for its coming fad-ulous future: Useless ads, lack of Google-level profitability, and they don’t get mobile.

Useless ads

I use Google Gmail and I noticed a long time ago, and from time to time, that there are these gnats on the right side of the page, in the right column. Loads of them. Oh, those are ads appearing in my inbox — very similar to what Facebook ads look like. I’ve never clicked on one, but someone must be or wouldn’t Google replace them with something else that was more useful and profitable? I think we should give Facebook some time to grow a little and grow with the social savvy of its user base.

Google Profits Compared to Facebook Profits

Yawn. I’m sorry. It doesn’t doom them to fad status because they don’t mirror precisely the Google Wave (no pun intended; I’m a huge Google fan). I think I even own a few shares, maybe 10, – yes, that’s a disclosure.

I know that’s poor English. Maybe I should have said “Facebook Can’t Has Cheezburger” instead. They acquired Instapaper; I mean Instagram. If anything was a fad, I’d lean toward the saying it was the no-revenue photo app, even though I think it’s cool. Every year, for the last 4-5 years has been the “year of mobile” and small business and big business had better jump on board yesterday. Come on. Mobile, like social, is still in its infancy. As Eric Jackson wrote this week, maybe the whole social graph thing – is still in 1.0 status. Watch your friends on Facebook in that live chat column area and see how many have mobile enabled. Of my small 450+ friends on Facebook, a fair number of them have mobile enabled even though Facebook doesn’t get it. They have time.

Some more back of the envelope commentary on next page, PLUS some gallery photos of women protesting before the IPO.

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As a creative in a digital ad agency, I’ve seen the majority of our web work (50%?) move towards development for Facebook. The ability to create any type of application for any type of company to engage current and potential customers blows away any time of interactive Google would allow through it’s advertising. With clients willing to pay up to $250k per application, we find our selves developing micro sites to live within the FB framework while they avoid standalone sites all together. This trend is continuing to move forward and will keep getting bigger and bigger.

The question isn’t whether Facebook will still be around in 10 years, but whether it is worth 100 billion dollars.

When the writer admits that he is “on it for business reasons mostly”, I wonder how much insight he has on average Facebook users’ trends and needs (I am myself a facebook user, not for business reasons, mind you). This makes him sound like a tech-writer living in his bubble and disconnected from mainstream consumers.

I agree. The question is not whether or not Facebook is a profitable company. The question is whether it is worth the valuation of a hot company everyone knows about during the first few days as a public company. Will it be worth as much 6 months from now?

You have something important and interesting to say; say it without being “cute” with the English because it detracts from what you’re saying and that gets frustrating. Respectfully submitting my opinion: EdJM

I love all these comments. Seriously. Thank you for taking the time to share your thoughts. Thanks Edward. I appreciate your thoughts Nicolas. As for the sarcasm and slights, fair enough, my post is cheeky. My point is that all the slams on FB are equally off-base. No one knows. The company is doing some things right, a lot of things right, and I’ve also slammed them from time to time. And yes Scott, I realize the IPO is sold out before it opens. Thanks for pointing that out. One could argue that all stock investing is akin to gambling. I’ve made money after hot IPOs, buying after the big guys made their money.

Barthelemy, I’m a mainstream consumer, far from a tech bubble. Is it possible to use something for biz reasons, but still be a consumer, with consumer glasses on? Point is that FB has tons of data, perhaps more data on consumer life than Google, and has yet to fully monetize it. We could debate all day — my point is — to counter the idea that after the IPO that FB is going to spiral down. There’s no correlation for that just because there’s lots of hype and a frenzy around the IPO. There are historical comparisons, but that doesn’t prove anything. Facebook has an opportunity to be a great company and one that outstrips Google in value. Will it do it? Your question says it well.

Edward, You are probably too young to remember the Palm Computing IPO in March 2000. At the end of the first day, the company had a value a $50 billion. HP bought it a few years ago for $1.2 billion. Who uses a Palm Pilot these days? Who uses MySpace these days?

Its hard to believe Forbes pays ignorants like you to write about these things. How much money did you lose on FB? Oh, yes, just $10 because you said you only bought one share, and yet you invited people to buy as much a they could. Pathetic

Shorter, simpler: “I really don’t understand the nature of equity markets, but buy as much Facebook stock as you can, because ‘haters just be hating.’”

I used to play penny stocks when I was younger. The impulse to blithely brush away critical perspectives as silly or boorish, simply because one *feels* that a stock can’t help but be a success, is a mindset I’m very familiar with — I’ve seen a lot of people lose a lot of money by indulging in the self-satisfied attitude of, “bah, so what!,” when someone raises a doubt about the relative soundness of an investment.

In this case, the bear argument is pretty simple and straightforward — and nothing at all like the straw man presented in this article. It is simply a matter of valuation. FB seems to think its worth north of 100 billion dollars, market cap, but has yet to explain in any coherent fashion why that is. “Trust us — we’re *totally* good for it,” is how the early dot coms peddled their stocks as well…and there was no shortage of folks who thought that was good enough to “buy and buy as much as you can” back then, too.

The stock market is a ruthlessly unsentimental place — Facebook chose to IPO promising the moon and the stars to investors, and cannot help but fail to deliver on that promise to some extent or another, at some point or another, short of some divine intervention.

At the first whiff of less-than-stellar performance, the market is going to beat this stock to a bloody pulp. That’s my guess…

Only the extremely wealthy are allowed to buy it at the initial price. (I’m not kidding – this is enshrined in law, supposedly to “protect” those of us who are more vulnerable.) The privileged few then turn around and sell it for whatever the market will bear.

Just one of the many ways in which this game is rigged in favor of the very wealthy.

I feel that the article is a bit dishonest in how it frames the circumstances here. Facebook does not have to perform poorly as a company for the IPO to be a bad investment — it must only fall short of the astronomically high expectations set by its initial pricing.

Last year Facebook had $3.8 billion in revenue, not profit, just revenue. We don’t know how profitable Facebook is because it’s a private company. Let’s say Facebook’s executive team is absolutely stellar and they have even better margins than Google with 27.5% (Google achieved 25.7% profit margin in 2011). That would mean they earned $1.045 billion in profit which would imply a P/E ratio of 95.7 and a return of only a little over 1% on your investment. That’s a pretty bad investment which does not even begin to keep pace with inflation.

I agree that Facebook has tons of data and has an opportunity to be a great company. Isn’t it a stretch, however, to go from those assumptions to “buy early, and buy as much as you can”? Especially if, in the end, you’re going to buy one share?

Thanks all for your comments. I’m not sure how many of you will come back to read my comments in reply, however, here’s the skinny: Honest, average, everyday citizens are going to make money on buying and selling Facebook shares. That’s the point. There’s no scam. There’s no bubble just because of Facebook. The world is not going to “pop” tomorrow (or Monday since the markets are closed and nothing in the world pops on the weekend… ;-) ).

The plain and simple truth is that the market cap negative hysteria has very little to do with daily trading, but they may someday live up to their market cap. Many, many companies have higher market caps than someone thinks they are worth. But people still trade and make money.

There is honest opportunity in buying and selling Facebook and they are providing a fun and valuable service (valuable can be argued, but 900 million people have signed on – that is significant and not to be trifled with). Lots, LOTS, of people love using it. I’ve said that I am not a Facebook fanboy. But before someone argues about the 900 number — even if its only 100 million or 10 million active users, passionate users — can you build from there? Have you ever built a company that took off like this?

Ditch the statistics that say “millions of people are leaving FB…” Forget that GM bailed on the FB platform. They are 10 million out of 3.27 billion in ad sales revenue. Think bigger. Has FB created a platform like no other company to date? Yes. Drop the MySpace and Google comparisons. It is a NEW approach to engaging with your customer, with the consumer public. Again, the point is that some of the reasons for not investing are not good advice.

For the places where some of you wonder if I’m joking, I probably am. Yes, I’ll buy more than one share. If I was sitting on an extra $100k or $5k, I’d buy. I wrote this post to counter all the commentary about how it is a bad investment, and on and on. All the negative talk is a waste of time. Yes, the institutional money gets in first. They take some of the bigger risks earlier. Is there a conspiracy against Joe Citizen because they got in early? No. Please.

Invest or don’t invest, but separate your decision from the hysteria. Invest or don’t invest, but don’t complain about they’ll never reach the market cap or they are over-valued. People scoffed at Apple, at HP, at Google, at Amazon. Are you a scoffer? That’s okay — just don’t begrudge other people their profits for taking risks.

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